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Fed members agree job market must improve before bond buys slow Fed members agree job market must improve before bond buys slow
(2 months later)
Many Federal Reserve members agreed last month that the job market's improvement would have to be sustained before the Fed would reduce its bond purchases, according to minutes of their June meeting. Several felt confident that a pullback in bond purchases could occur soon.Many Federal Reserve members agreed last month that the job market's improvement would have to be sustained before the Fed would reduce its bond purchases, according to minutes of their June meeting. Several felt confident that a pullback in bond purchases could occur soon.
The minutes released Wednesday echo remarks Chairman Ben Bernanke made at a news conference after the meeting. Bernanke said the Fed would likely slow its bond purchases later this year and end them around mid-2014 if the economy continued to strengthen. The bond purchases have helped keep long-term interest rates low to spur spending.The minutes released Wednesday echo remarks Chairman Ben Bernanke made at a news conference after the meeting. Bernanke said the Fed would likely slow its bond purchases later this year and end them around mid-2014 if the economy continued to strengthen. The bond purchases have helped keep long-term interest rates low to spur spending.
The minutes suggest that a slowdown in the Fed's bond buying in September "is not quite a done deal," said Michael Hanson, US economist at Bank of America Merrill Lynch. "For a taper in September, we may still need to see some more improvement in the economy."The minutes suggest that a slowdown in the Fed's bond buying in September "is not quite a done deal," said Michael Hanson, US economist at Bank of America Merrill Lynch. "For a taper in September, we may still need to see some more improvement in the economy."
Since the purchases began in September, the economy has added an average 204,000 jobs a month, up from 174,000 jobs in the previous nine months. Still, unemployment remains a high 7.6%.Since the purchases began in September, the economy has added an average 204,000 jobs a month, up from 174,000 jobs in the previous nine months. Still, unemployment remains a high 7.6%.
The minutes pointed to divisions within the Fed over both when to slow the purchases and when to end them altogether. About half the "participants" favored ending the bond purchases late this year – several months earlier than Bernanke has indicated. Participants include both voting and non-voting members of the Fed's policy committee.The minutes pointed to divisions within the Fed over both when to slow the purchases and when to end them altogether. About half the "participants" favored ending the bond purchases late this year – several months earlier than Bernanke has indicated. Participants include both voting and non-voting members of the Fed's policy committee.
At the same time, "many other" participants thought the purchases should extend into 2014.At the same time, "many other" participants thought the purchases should extend into 2014.
Fed members struggled with how best to convey the Fed's thinking about its timetable for bond purchases, the minutes showed. Some wanted to explain it in the post-meeting statement. Others felt the statement might be misinterpreted. In the end, most participants thought Bernanke should lay out the Fed's thinking in his news conference – and stress that any pullback in bond purchases would depend on the economic outlook.Fed members struggled with how best to convey the Fed's thinking about its timetable for bond purchases, the minutes showed. Some wanted to explain it in the post-meeting statement. Others felt the statement might be misinterpreted. In the end, most participants thought Bernanke should lay out the Fed's thinking in his news conference – and stress that any pullback in bond purchases would depend on the economic outlook.
Bernanke stressed at the news conference last month that if the economy weakens, the Fed wouldn't hesitate to step up its bond purchases again. Still, stocks and bonds plunged after his remarks, and interest rates surged.Bernanke stressed at the news conference last month that if the economy weakens, the Fed wouldn't hesitate to step up its bond purchases again. Still, stocks and bonds plunged after his remarks, and interest rates surged.
Several Fed members helped steady stock markets in the days that followed by noting that any pullback in bond buying would hinge on the economy's health, not a target date. Stocks have since regained most of their losses, in part because of encouraging data about the job market and corporate earnings.Several Fed members helped steady stock markets in the days that followed by noting that any pullback in bond buying would hinge on the economy's health, not a target date. Stocks have since regained most of their losses, in part because of encouraging data about the job market and corporate earnings.
Each month since late last year, the Fed has been buying $85 billion in Treasury and mortgage bonds. The bond purchases have kept long-term rates near record lows. Ultra-low rates encouraged more Americans to buy homes and cars, fueled economic growth and cheered the stock market.Each month since late last year, the Fed has been buying $85 billion in Treasury and mortgage bonds. The bond purchases have kept long-term rates near record lows. Ultra-low rates encouraged more Americans to buy homes and cars, fueled economic growth and cheered the stock market.
Investors worried that once the Fed starts scaling back its bond buying, home loans would start to cost more, corporations would pay more to borrow and bond investors would be squeezed.Investors worried that once the Fed starts scaling back its bond buying, home loans would start to cost more, corporations would pay more to borrow and bond investors would be squeezed.
But steady job gains have raised the likelihood that the Fed will announce after its September meeting that it's reducing its bond purchases.But steady job gains have raised the likelihood that the Fed will announce after its September meeting that it's reducing its bond purchases.
Still, economic growth has been subpar. The US economy grew at an annual rate of just 1.8 percent in the January-March quarter. Economists think growth stayed below a 2 percent annual rate in the April-June quarter. If so, it would mark a third straight quarter of weak growth.Still, economic growth has been subpar. The US economy grew at an annual rate of just 1.8 percent in the January-March quarter. Economists think growth stayed below a 2 percent annual rate in the April-June quarter. If so, it would mark a third straight quarter of weak growth.
Most think growth will pick up in the second half of the year but stay around 2% for the year.Most think growth will pick up in the second half of the year but stay around 2% for the year.
The Fed's forecasts are rosier: It predicts growth of 2.3% to 2.6% this year and more than 3% in 2014. It also expects unemployment to fall as low as 7.2% by the end of this year and as low as 6.5 percent by the end of 2014.The Fed's forecasts are rosier: It predicts growth of 2.3% to 2.6% this year and more than 3% in 2014. It also expects unemployment to fall as low as 7.2% by the end of this year and as low as 6.5 percent by the end of 2014.
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